Federal Judge Allows Ford ESOP Suit to Move
Forward

December 24, 2008 (PLANSPONSOR.com) - The U.S.
District Court for the Eastern District of Michigan has
denied a motion to dismiss a case brought by participants of
Ford Motor Co.'s employee stock ownership plans claiming the
plans' investment in Ford company stock was
imprudent.

According to the opinion, Ford moved to dismiss the
case on the grounds that the participants did not state a
viable claim for relief. Ford argued that it committed no
breach of fiduciary duties under the Employee Retirement
Income Security Act (ERISA) because the plan documents
required the plans be invested in Ford company
stock.

However, U.S. District Judge Stephen J. Murphy, III
noted in his opinion that while ERISA does provide an
exemption from diversification rules for ESOPs, it does
so while still requiring that the plan sponsor act with
prudence when investing in company stock.

Using previous case history Ford argued that it did
not commit a fiduciary breach by continuing to invest in
Ford stock because, during the class period, it was not
facing “imminent collapse.” Also looking to
prior case history and the statutory language of ERISA,
Murphy rejected this argument, saying that the
“presumption of prudence means that [the law]
requires fiduciaries to divest their plans of company
stock when holding it becomes so risky – that is, so
imprudent – that the problem could not be fixed by
diversifying into other assets.”

Finally, Ford argued that a magistrate judge that
refused to dismiss the case previously erred by not
considering the ESOPs company stock investments together
with other investments in other retirement plans offered
to employees. Ford said that because its employees were
free to diversity their retirement savings across all
plans offered to them, they were greatly exaggerating the
risk the stock plans presented to their retirement
savings.

However, the court agreed with the participants who
contended that Ford had a fiduciary duty to ensure that
each of the investments it offered for retirement savings
was a prudent one.

Notably, another U.S. District Court recently came
to a very different conclusion in a company stock
case. The U.S. District Court for the Western
District of Texas granted Dell Inc.’s motion to
dismiss a case against it, saying the Dell plan is an
eligible individual account plan (EIAP) and therefore
exempt from ERISA’s diversification requirements, and
that Dell properly diversified by offering various other
funds in its plan (See
Court Sides with Dell in Company Stock
Suit
).